The Euro Zone’s main interest rate, the deposit rate defined by the European Central Bank (ECB), should remain at the current 2% for four and a half years, until the end of 2029, projects the International Monetary Fund (IMF), in the study on economic perspectives (outlook) released this Tuesday, from Washington, in the United States, where the institution’s and the World Bank’s global meetings are taking place.
The ECB’s reference rate (deposit rate), the main index that commercial banks use to then stipulate the final rates in credit contracts and deposits (savings) of families and companies, fell to 2% last April, the lowest value since the end of 2022, the year in which the war in Ukraine began. The IMF now anticipates that it will remain at a plateau until the end of 2029. It takes four and a half years at the 2% level, so that euro inflation remains anchored at the same value.
Remember that, in September 2023, the ECB rate rose quickly to a historic maximum of 4% to try to calm inflation (the cost of energy soared with the war, there were months in which it even broke the 10% barrier), but since then it has been easing, to compensate for the harmful effects of rising prices on economic activity, the loss of purchasing power in consumption and the cost of debt that finances the necessary investments in the economy.
In this new outlook, the IMF considers that, in this final stretch of 2025, Frankfurt has reached the desired balance point of 2%, so there will be no more surprises in the international economy that could cause inflation to soar or sink. The “risks” highlighted by the IMF in the short and medium term scenario are salient, in any case.
In the chapters on monetary policy projections in the world’s largest economies, the Fund, directed by Bulgarian economist Kristalina Georgieva and whose chief economist is Frenchman Pierre-Olivier Gourinchas, states that “the central banks of the main jurisdictions [áreas monetárias] should adopt different interest rate trajectories, reflecting differences in the extent of inflationary pressures”.
“In the United States, the key interest rate is projected to be reduced along a slightly earlier path than expected in the April World Economic Outlook, falling to 3.5%–3.75% at the end of 2025”, reaching, at the end of the projection, “2.75%–3%” at the end of 2028.
In the Euro Zone, which is governed by the ECB, “interest rates are expected to remain stable at 2%” until the fourth quarter of 2029 (see chart).
“In Japan, interest rates are expected to rise gradually over the medium term towards a neutral setting of around 1.5%, consistent with maintaining inflation and inflation expectations anchored at the Bank of Japan’s 2% target.”
The longer plateau in the ECB’s interest rate had already been anticipated at the end of September by the Organization for Economic Cooperation and Development (OECD), albeit in a shorter window, until the end of 2026, at least.
In this OECD outlook, the latest signed by the chief economist of the Paris organization, Álvaro Santos Pereira, now governor of the Bank of Portugal, the main rate defined in Frankfurt, which, once again, determines the value of loan installments payable to banks and the interest on term deposits, would remain stationary at 2% until the end of next year.
After keeping the cost of money unchanged at its July and September meetings, the ECB meets again on October 30, in Florence, in a special board of governors organized by the Bank of Italy. No changes are expected from the banks of the River Arno.
The IMF and the OECD argue that, although such a plateau is projected at 2% in the interest rates that have been in force in euro countries for months, this does not mean that its course is 100% guaranteed.
There are immense risks and the ECB will have to remain vigilant, say the two institutions (IMF and OECD). The total impact of tariff increases can still derail economic sectors or increase prices in an impractical way, for example. The global belligerent environment adds uncertainty to the problem.
“Excessive market volatility” and exchange rates
According to the IMF, in its outlook, “globally, monetary policy continues to shift from a record of aggressive restriction to a more subtle position, tending towards flexibility or neutrality”.
“In some countries, where the fiscal policy stance is becoming more flexible, the key interest rate is expected to remain stable, but high uncertainty may cause fluctuations in interest rates.”
Furthermore, “concerns about excessive market volatility resulting from sovereign refinancing risks are a challenge for central banks” whose goal is to maintain financial and price stability.”
The Fund concludes that, from now on, “monetary policy stances tend to become more divergent”, which “could lead to sharp fluctuations in exchange rates”.